The New Housing Boom (IYR, LEN, HOV, BX, PHM)

Mitchell Clark: My cousin and his family had to walk away from their house in Arizona. There were no buyers, and they were underwater after the market crashed. The whole thing was really hard on them on all fronts, and they had to move. They’re in Colorado now,

closer to family, with the ordeal behind them.

Like most things, timing is everything. In real estate,institutional investors are buying homes like crazy to rent out. The new housing boom is for rentals.

The Wall Street Journal wrote that The Blackstone Group L.P. (NYSE:BX) is buying homes at a rate of about $100 million a week, with institutional investors now making up a third of all cash buyers. Affordability for individuals is going to get squeezed.

According to the company, its fiscal first quarter of 2013 (ended February 28, 2013), produced revenue growth of 37% to $990 million. New orders grew 34% to 4,055 homes; the company’s order backlog grew 82% to 4,922 homes. Earnings for Lennar grew significantly to $57.5 million, or $0.26 per diluted share, compared to net earnings of $15.0 million, or $0.08 per diluted share.

On the stock market, institutional investors have bid the stock up 30 points since last October. (See “Stock Market Sinkhole: ‘It Didn’t Look Unstable’.”) It’s a stock market breakout for sure, but it’s based on fundamentals. Lennar’s stock chart is below:

Chart courtesy of www.StockCharts.com

Homebuilder PulteGroup, Inc. (NYSE:PHM) quintupled on the stock market over the last six months. Hovnanian Enterprises, Inc. (NYSE:HOV) has tripled since last June.

Clearly, the run on homebuilders is a multi-faceted play by institutional investors. The buying momentum for both rental homes and on the stock market is pronounced, and I see no reason why it will end in the near term.

The rental play makes so much sense for institutional investors. If a person’s credit score was trashed after the real estate crash, continued renting for that individual is highly likely. And institutional investors like Blackstone have deep enough pockets to wait out the real estate cycle.

The re-inflation of assets in some real estate markets is happening. Investor sentiment for the stock market is holding up. Institutional investors are buying houses and buying stocks. Near-term trading action is positive.

There is more room for homebuilders to keep appreciating on the stock market. Lennar’s numbers were exceptionally good. The company’s margins are going up and it experienced a 13% increase in its average home price in backlog.

Institutional investors will likely increasingly flock to the housing market over the coming quarters. Stock market action for anything housing-related should continue to be positive.